The Australian dollar, once a darling of currency investors due to relatively high interest-rate differentials, faces more depreciation pressure ahead, according to an economist at SG Securities. Glenn Maguire, the chief economist for Asia and Australasia at SG Corporate & Investment Banking, said the interest-rate differential between the aussie and the US dollar could narrow quite quickly. 'The main reasons for the strength in the aussie in the past few years are the strong economic growth in Australia and the very wide interest-rate differential,' Mr Maguire said. However, a steady rise in the US federal funds rate - which is unlikely to be paralleled by the Reserve Bank of Australia this year - will erode the differential. Put simply, investors would be better off shifting out of the aussie, according to Mr Maguire. He has a 12-month target of 65 US cents for the aussie, which traded at 70.74 cents on Friday. Short-term rates in Australia have been kept at a relatively high 5.25 per cent in an attempt to dampen the housing boom. But Mr Maguire expects the Australian property market to see a correction on its own accord, as supply, particularly in the apartment sector, exceeds demand. Moreover, 'the current account deficit remains quite wide and the monthly trade balances remain in deficit,' said the economist. 'The economy will have difficulty maintaining the currency at this level.' The yen would be a better choice as the Japanese economy is on the upswing. 'The outlook is optimistic and the equities markets there still look cheap. I think the yen will continue to appreciate to the 95 to 100 level over the next 12 months,' Mr Maguire said. The yen traded at 109.47 to the US dollar on Friday. While oil prices have retreated about 11 per cent from the record high of US$49.40, some observers believe energy plays such as oil and natural gas companies still demand attention in anticipation of a structural imbalance between energy supply and demand. Despite the recent retreat, 'oil prices will stay high,' said Mabel Chan, director and head of retail sales at Invesco Asset Management Asia, citing rising demand and decreasing oil reserves. She said average daily oil consumption had risen to 82 million barrels recently from 79 million barrels last year, with China contributing about 32 per cent of the increase. At the same time, excess capacity for oil has been dropping to 3 per cent from 25 per cent two decades ago. She expected oil prices to remain at US$40 per barrel in the near term. Equity markets were likely to suffer as continuously high oil prices would hurt corporate margins, but energy plays such as oil stocks were likely to shine, particularly as oil prices and energy share prices were now getting more closely correlated due to a change in investor perceptions, said Ms Chan. She also suggested investing in other energy resources, including natural gas, the nearest practical alternative to oil.